In this opinion piece, Caroline Messecar, Strategic Markets Editor for technology metals, Fastmarkets, delves deeply into the complex, confusing and sometimes counter-intuitive world of rare earth commodity prices. And she asks what made prices collapse by almost 70 percent in just two years?
Deep pit mine being excavated for rare earths elements Photofex_AUT, Shuttestock
Every three months investors listen in to the financial results conference calls of some of the world’s biggest rare earth producers. They are often eager for guidance on the outlook for rare earth prices. Last July Amanda Lacaze chief executive of Lynas Rare Earths, the world’s largest producer outside China, said this:
Inside Lynas, I don’t think any of us have ever had consistent winning bets on what’s going to happen with the price of rare earths.”
Lynas accounts for around 15% of global supply of arguably the most important rare earth product – neodymium-praseodymium (NdPr) oxide. NdPr oxide is the main rare earth component of neodymium iron boron magnets – the value driver for the entire industry. So you could be forgiven for finding her words surprising.
Chief executive of US major MP Materials, Jim Litinsky, said this on an earnings call last August:
It’s always very difficult to read the tea leaves in China”.
Most recently, Rahim Suleman chief executive of Europe’s only large rare earth oxide producer and magnetics specialist Neo Performance Materials said: “We are not in the business of fore-casting rare earth prices,” in an earnings call on March 14.
Between them, Lynas and MP supply a very substantial share of global demand for rare earth materials. Materials so critical to the energy transition and the future of the automotive industry that governments around the world are investing bil-lions. Neo has been producing and developing rare earth products for many years and is building a rare earth magnet plant in Europe. Between them all, they share a wealth of market, engineering and product experience.
Lynas is the key supplier to Japan’s highly advanced magnet manufacturing sector serving the country’s automotive and electronics sectors. I am sure they know exactly what demand for high-performance rare earth magnets is over the next twelve months.
So why is it so hard – seemingly impossible — to forecast rare earth market prices for the next six months or a year?
To understand this, you need to try to understand what is driving rare earth prices.
A process of elimination
Past performance does not guarantee future results. But sometimes it is all you have. Since forecasting is so problem-atic let’s look at the data we do have – past prices. And at-tempt to reverse engineer the factors that are the most and least likely to have been involved in the recent price slump. To break it down into more manageable chunks I’ll treat each factor as a potential candidate for the role of price driver.
First candidate: EV demand pause
After years of intense hype about the EV transition the media and the markets have turned decidedly frosty about the outlook. This prompted Litinsky to declare that “Wall Street has decided that it is Armageddon for the electric vehicle right now… but the strategic value of what we have remains,” on the earnings calls for MP’s fourth quarter 2023 results on February 29. But speculation aside, what did this actually mean for physical rare earth prices last year? Surprisingly little.
Most of the NdPr oxide produced today does not go into high-performance neodymium iron boron (NdFeB) magnets in the drivetrains of electric and hybrid vehicles. The share of NdFeB magnets in traction motor applications last year was around 10-15% based on industry estimates. Over 85% of electric and hybrid vehicles do use rare earth magnet motors in their drivetrains, but it is still a relatively new and developing industry. The rare earth magnet industry on the other hand, has been around for decades.
There is also an interesting nuance here. The drivetrains for hybrid vehicles use almost the same quantity of NdFeB mag-nets as pure electric vehicles. Rough estimates I have heard range from 1.2-2kg per vehicle. And internal combustion en-gine vehicles also use NdFeB rare earth magnets, just slightly different ones and in much smaller amounts. They can be found everywhere from fuel injection pumps to seat motors, brakes, music systems and sensors.
So while weaker consumer demand for EVs in China and re-tracking of plans by some western carmakers are important market developments. It seems unlikely that this was enough to really move the needle on rare earth prices. Or at least not by enough for them to lose 70% of their value.
Where did all the rest of the NdPr oxide supply go last year? The answer is in a lot of magnets in a lot of different places. NdFeB magnets have found their way into almost every area of modern life since they were invented over forty years ago. They are in everything from washing machines, power tools and air conditions to lifts, MRI scanners, smart phones, com-puters, water pumps, industrial motors robotics, offshore wind power turbines… the list simply goes on and on. This leads me nicely to price driver candidate number two: economic downturn,
Candidate Number 2: Global economic downturn
This is one of my best candidates for falling prices because it lines up so well. The rare earth industry has been described as a five billion dollar industry feeding into eight trillion dol-lars’ worth of products. So it must feel the impact every-where from housing starts in China to consumer goods and equipment made and exported the world over.
China is the world’s largest manufacturer and consumer of rare earth magnets. But has the downturn been dramatic enough to collapse the price?
I was discussing this with an industry expert, and he said I was missing the point. “It’s not about demand it’s about supply. The market is oversupplied with rare earth products,” he said.
What is the potential evidence for this? Maximum pro-duction quotas for light rare earth products in China have risen. And the country is importing much larger amounts of mined materials – monazites, ores concentrates and oxides – and these volumes are not included in the production quotas.
Economic downturn and rising supply are looking like pretty good candidates for the role of price driver. But was this enough to bring prices down by 70%? Let’s look at the next candidate – previous volatility.
Candidate Number 3: Previous volatility
What goes down must first go up. In March 2020 prices for NdPr oxide were around $40/kg. So why did they increase by 300% to $160 per kg in March 2022? Demand for all the many applications they support surely didn’t rise that much?
Obvious factors behind rising prices include the impact of Covid lockdowns and restarts, inflationary pressures, industry consolidation in China and rising demand across new applica-tions. But 300%? What was the genie let out of the bottle that could make that happen?
What makes this even harder to grapple with is that NdPr oxide prices were remarkably flat for most of the prior seven years. From 2013 through to the end of the decade, prices were mostly rangebound and well below $70 per kg. This sustained period of almost unnatural calm was itself preceded by a period of ex-treme volatility triggered by a political conflict between China and Japan in 2010-2011. The ensuing market panic led to price spikes that make a 300% rise look less dramatic. If rare earth prices are trying to find their true market value, they are taking a very circuitous route. And previous volatility is looking like a good candidate for price driver.
Candidate number 4: Geopolitics
A rare earths story is not complete without a little geopolitics.
In another world, rare earths would make banner headlines in scientific and engineering journals, not defence and political reviews. But we live in the world that we have. Rare earths are a geeky engineering miracle stuck in the middle of the world’s biggest argument. Over five years into the technology and trade war between the US and China. If you can’t rule out geopolitics as a factor moving prices, then you have to rule it in.
By Caroline Messecar
Srategic Markets Editor, Fastmarkets
Fastmarkets launched phase II of a suite of rare earth prices in China and Europe on March 14 which move further down-stream into the magnet supply chain.
Visit: https:// www.fastmarkets.com/metals-and-mining/rare-earths-prices-and-news/
